KVP, PPF or NSC: Which is best?

GAURAV KANSAL 12:06 KVP , NSC , PPF No comments

The Govt has re-introduced the Kisan Vikas Patra with the announcement for the same being made in the Budget 2014 which was presented by Arun Jaitley. The Govt had earlier discontinued the Kisan Vikas Patra in 2011 but these have now been reintroduced as discontinuation of the same was harming the savings mobilization of small investors.

Apart from the Kisan Vikas Patra, there are various other fixed income earning instruments as well which can also be purchased from the Post Office and the most popular of these instruments are Investments in PPF Account and Investments in the National Savings Certificate (NSC). Sometimes, a conservative investor needs to select one of these. So there is a question of which is best KVP, PPF or NSC

These instruments are fixed income earning instruments and can be purchased from the Post Office, Here is a comparative analysis of KVP, PPF and NSC.

80 C Benefits

The Investment made in PPF Account and National Savings Certificate is allowed as a deduction under Section 80C. However, the maximum deduction allowed under Section 80C is limited to Rs. 1,50,000 (FY 2014-15)

However, the investment made in the Kisan Vikas Patra is not allowed as a deduction under Section 80C.

Interest Rate

The Interest Rate on KVP is the lowest i.e. 8.4% whereas the Interest Rate on PPF and NSC is in the range of 8.5 to 9%.

The Interest Rate on PPF Account is announced by the Govt every year and keeps on changing every year whereas the Interest Rate on the NSC depends on the maturity period of the instrument. Although the interest rate on PPF & NSC depends on various factors – it varies in the range of 8.5% to 9%.

Tax on Interest earned

The Interest earned on PPF Account is Tax free and fully exempted from the levy of income tax.

* Interest earned on the National Savings Certificate is reinvested in the National Savings Certificate and therefore can be claimed as a deduction under Section 80C as the amount has been reinvested. Therefore, the interest on this income also becomes tax free.

The interest earned on the KVP is not tax free and tax would be payable on the interest earned on the KVP as per Income Tax Slab Rates.

Maximum Investment Allowed

The Maximum Investment allowed in PPF Account is Rs. 1,50,000 p.a. (w.e.f. 2014 onwards).

However, there is no maximum limit on the Investment allowed in the National Savings Certificate and the Kisan Vikas Patra.

Minimum Amount to be invested

The minimum amount to be invested in the all the three instruments i.e. KVP, PPF & NSC is Rs. 100.

However, Rs. 500 is the minimum amount to be invested in PPF Account every year.

However, there are no such criteria in KVP and NSC and no minimum amount is required to be deposited in KVP and NSC every year.

Place of Purchase/ Investment

KVP and NSC can only be purchased from Post Office and not from any other place.

However, PPF Account can now be opened in both Post Offices as well as with certain specified Banks.

Maturity period

The maturity period of the PPF Account is 15 years whereas the maturity period of KVP is 8 years and 7 months.

The maturity period of the National Savings Certificate is 5 years and 10 years depending on type of certificate in which the investment has been made.

Premature Withdrawals

The amount in the PPF Account can be withdrawn anytime after 5 years at the discretion of the investor. However, only 50% of the amount in the PPF Account can be prematurely withdrawn.

Premature withdrawal from KVP and NSC is allowed only under the following circumstances:-